News of the cancellation comes after the second summit between US President Donald Trump and North Korean leader Kim Jong Un ended without an agreement, though the two sides did pledge to continue to work towards denuclearization and a peace settlement.
In a statement, South Korea said Defense Minister Jeong Kyeong-doo and acting US Secretary of Defense Patrick Shanahan had discussed the summit and expected more "active dialogue between the US and North Korea based on the outcome of the talks."
"Through close consultation between the authorities of South Korea and US Defense, the two concluded to end Key Resolve and Foal Eagle," the statement said, referring to the two major annual drills that typically involve tens of thousands of US and South Korean troops and mock events including rehearsals for invading North Korea.
The drills are regularly denounced by Pyongyang where they are regarded as preparations for a potential invasion. The drills have previously been used by North Korea to justify the country's advanced weapons programs. China too has called on the US to cancel the exercises in return for North Korea pursuing denuclearization.
The drills were put on hold last year ahead of the 2018 Winter Olympics, as the two Koreas began talks which eventually resulted in a summit between Kim and South Korean President Moon Jae-in, and later Kim and Trump.
Trump himself has been a critic of the drills in the past. On Sunday, he tweeted that their cancellation would "save hundreds of millions of dollars for the US."
"That was my position long before I became President," he added. "Also, reducing tensions with North Korea at this time is a good thing!"
Downsizing
US officials said smaller joint exercises -- called "Dongmaeng" -- would be carried out later this month, from March 4 through March 12, in place of Key Resolve. Much smaller, battalion-sized exercises will take place later this year to replace Foal Eagle.
The willingness of US and South Korean officials to cancel the long-running drills is a sign both of a continued push on both sides towards a diplomatic outcome, and the radically reduced tensions on the Peninsula since talks began.
North Korea has not conducted any missile or nuclear tests since late 2017, and following the talks in Vietnam with Trump, Kim pledged to continue this pause.
South Korea's statement said the decision "is a reflection of both countries' expectations in support of diplomatic efforts to mitigate tensions and achieve a complete denuclearization in a final and fully verifiable way."
Both Koreas have agreed to work towards a peace treaty to finally end the Korean War, which ended in armistice in 1953, and scaled back the militarization of the de facto border between the two countries.
Critics of the drills have long complained that they are a needless source of tensions, equivalent to North Korea's missile launches, and not necessary from a US military perspective.
China in particular has frequently called on the US to cancel the drills as a first step towards denuclearization.
Long history
Joint US-South Korean war games have been held since fighting ended on the Peninsula in 1953. The drills themselves often mimic real-life combat situations -- amphibious landings, intense live-fire exercises, counter-terrorism drills and simulated or tabletop battle plans.
Speaking after the Key Resolve drills in March 2017, US Forces Korea deputy commander US Lt. Gen. Thomas Bergeson said the alliance's mission "is first and foremost to deter any aggression from North Korea."
"If that deterrence fails then we are in a position to defend the Republic of Korea. And if we defend, we are going to defeat the enemy and win," he said in a statement.
Daniel Pinkston, a professor of International Relations at Troy University in Seoul, previously told CNN the exercises are vital practice for forces based in South Korea, especially those US troops who rotate into the region on year-long deployments.
"There are a lot of scenarios of tasks you might have to do during a very wide range of scenarios," he said. "Very complex things that have to be coordinated and executed."
Not holding the exercises, Pinkston added, risks weakening "the capacity of the South Korean military and the USFK to respond to a variety of military contingencies" and could invite aggression.
In the statement this week, South Korean and US officials said that "communication between the US and South Korea is ongoing more smoothly than ever in the changing security environment on the Korean Peninsula."
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